When some people see life insurance that doesn’t require a medical exam, they are tempted to fib about their health history. But, what consequences does this have?
Insurance, without a medical checkup, is marketed as a convenient solution. It’s for those who have a dislike for doctors, and don’t have the time to undergo a full exam.
Some people, however, see it as an opportunity to lie about their health, or history. This is in order to get insurance when they would otherwise be rejected.
Doing this is, however. a mistake. It practically hands your money over to the insurer and will, most likely, result in your beneficiaries never getting a claim through.
This is because insurers have various checks in place to prevent the payout of claims from clients who they suspect have lied on their applications.
Here are a few of them…
The Contestability Period
The contestability period, which is often around two years, is a period during which the insurer can cancel coverage and return payments if the insured is believed to have lied on their application.
This means, claims made during this period will likely be closely examined to see if there is any possibility for denial of payment.
According to FreeAdvice.com, insurers are particularly nit-picky during this period so any untruth told, however small, will likely be uncovered. This means that something simple like denying that you used to smoke in the past can lead to the cancellation of your coverage.
In this sense, telling a lie will cost you more than had you just told the truth. Sure, you may have had a reduced price for premiums. But, what use is that when a claim is ultimately rejected or the whole policy is declared void?
Something such as not disclosing a risky hobby, like skydiving, can result in your beneficiaries never seeing a penny of that insurance.
During the contestability period, both outright lies (positive misrepresentation) and omitted information (negative misrepresentation) qualify as basis for a claim rejection and voiding of the contract.
Material Misstatement Clauses
According to FreeAdvice.com, the most common reason for life insurance claim rejection is due to alleged misstatements on the part of the customer.
A “material misstatement” is essentially a lie told on the life insurance application that prevented the application from being rejected. For example, if you were asked if you had any terminal illnesses and you have cancer (and you are aware of it), but stated the opposite on the application because you knew that otherwise you would not be insured; you have created a material misstatement.
When a claim is submitted, the first thing insurers will review is whether any misstatements were made on the original application.
Material misstatement applies even after the contestability period is over. It is somewhat different from contestability clauses though, as it is based on deliberate misrepresentations from the insured. And not errors or mistakes (e.g.: forgetting that a family member had a heart condition).
If your material misstatement is a significant enough lie, you might even be charged with fraud. This if the lie is found before you die. Or, if you try to claim for other parts of the life insurance plan, such as the terminal illness payout.
This means not only would you end up with no payout, but also the extra cost of legal fees and possible jail time.
You might wonder how an insurer would be able to find out any of this, but they have a few avenues to do this.
There is also a South African Insurance Crime Bureau, which is dedicated to investigating insurance fraud.
Access To Medical Records
Many insurance applications include terms and conditions which give your consent for the insurer to access private records, such as your medical history.
So, while some think that they are outwitting their insurer by leaving out a previous operation, if your contract gives access to your medical records, an insurer can easily find this information.
If you withdraw this consent by telling your doctor not to disclose a medical condition, insurers can approach courts to access the information if fraud is suspected, according to Cover.co.za.
Finally, another way insurers can assess whether you’ve lied is by getting access to your records via other insurance companies.
Companies work together and share information about insurance policies taken out by customers. Therefore, if you lied about being involved in a car accident, but your car insurance company has a record of your claim, your life insurer can likely get access to this information.
The South African Insurance Association (SAIA) is an example of a body of short-term insurance companies working together to help information flow between its members. They have created the Insurance Data System (IDS), which allows members to access information about claims from customers.
Meanwhile, the Life Offices’ Association, made up of long-term insurers, has established a claims registry for its members to combat fraud.
Basically, lying on your life insurance application won’t benefit you in the long run. In fact, it can leave your beneficiaries with a false sense of security and a world of trouble – even bankruptcy.